The smart solution is clear: a land value tax

We have a regressive system where people in modest homes pay a bigger proportion in tax

Share

There is stiff competition but stamp duty on house purchases has a strong claim to be Britain’s worst tax. That’s “worst” in the sense it creates economic distortions while doing absolutely nothing to guide behaviour in a socially helpful direction.

Labour reintroduced stamp duty bands in 1997. These kicked in on the entire value of properties sold above £60,000 (1 per cent), £250,000 (2 per cent) and £500,000 (3 per cent). But there was rampant house- price inflation in the next decade (10 per cent a year on average) and politicians failed to lift the thresholds in step. The result was more home sales were pulled into the tax net. The proportion of property sales liable for stamp duty rose from half in 1997 to three-quarters in 2003.

Governments have been fiddling around the edges since. Alistair Darling removed the tax from most first-time buyers. George Osborne brought it back (although he has replaced the perk with equity loans and subsidised mortgages). His Labour shadow, Ed Balls, still talks of granting new buyers a “holiday” from the duty. But this is no way to run a taxation system. Short-term relief and arbitrary tinkering creates uncertainty and pushes the problem out to another day.

Our political leaders should design a housing taxation system that will last. An obvious imperative is to remove the cliff-edge characteristics of this levy, whereby the full value of a property becomes taxable at a sharply higher rate above certain thresholds. This is an invitation to buyer and seller to collude in massaging the nominal price. There will be more of that behaviour now the average house price has reached £250,000, where the 3 per cent rate kicks in.

But reforming stamp duty ought to be linked to an overhaul of property taxation. It is ridiculous that politicians have not dared to revalue the council tax bands since the early 1990s. The result is a regressive system where people in modest residences pay a much larger proportion of the value of their homes in tax every year than the inhabitants of mansions. A mansion tax could be a solution, although the same could be achieved with less hassle by revising council tax bands.

Best of all would be a land value tax, requiring property owners to pay an annual levy based on the market value of the plot of earth beneath their home. This could potentially replace stamp duty, council tax and even business rates. It would encourage more housebuilding by discouraging land hoarding, penalise those who leave properties empty and ensure people paid for windfalls to their home values from new transport links etc. Sensible politicians should be all over it.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Technical Author / Multimedia Writer

Negotiable: Recruitment Genius: This recognized leader in providing software s...

Recruitment Genius: Clinical Lead / RGN

£40000 - £42000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: IT Sales Consultant

£35000 - £40000 per annum: Recruitment Genius: This IT support company has a n...

Recruitment Genius: Works Engineer

Negotiable: Recruitment Genius: A works engineer is required in a progressive ...

Day In a Page

Read Next
 

An unelectable extremist who hijacked their party has already served as prime minister – her name was Margaret Thatcher

Jacques Peretti
 

I don't blame parents who move to get their child into a good school

Chris Blackhurst
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent